Abstract
In a continuous-time Itô process market model with frictions in the form of percentage management costs and a higher interest rate for borrowing than for lending, the range of arbitrage-free prices of American Contingent Claims(ACCs) is derived, based on the principle of absence of arbitrage. Using the martingale approach, we obtain the upper and lower hedging price of ACCs.
| Original language | English |
|---|---|
| Pages (from-to) | 435-444 |
| Number of pages | 10 |
| Journal | Indian Journal of Pure and Applied Mathematics |
| Volume | 38 |
| Issue number | 5 |
| Publication status | Published - Oct 2007 |
Keywords
- Contingent claims
- Doob-Meyer decompositions
- Hedging
- Pricing